My contractor keeps talking about 'hard costs'. What is that?

There are 2 types of costs when it comes to your new home or renovation project. They are used to divide your project and it’s finances into 2 phases, pre-construction* and construction. Or what we call Hard and Soft Costs. 

Generally speaking, hard costs are expenses that are directly related to the physical construction of the building and soft costs are expenses that are not directly related to physical building.

The reason for the division is because hard costs are relatively easy to estimate what the costs are and when they will be incurred, depending on the progress of the project. So when you contact your General Contractor (GC) or Project Manager (PM) for a budget this will only reflect the cost of construction. 

But what about all the additional costs to get you to the point of construction?

Soft Costs are not as easily quantifiable or to forecast, and occasionally subjective. They also may continue even after the project has been completed*.

Hard Cost

Hard costs are all the physical construction materials and labour, such as grading, landscaping, concrete materials, plumbing, electrical, etc. If it’s directly related to the physical construction of a home project, generally incurred during construction, it falls under hard costs. 

Soft Cost

Soft costs are all the documents related to the project, such as permits fees, architectural and design fees, project management fees, insurance, accounting fees, taxes, legal fees, loan interest, etc. If it’s not directly related to the physical construction of a home project, generally incurred before construction, it falls under soft costs.

None of these soft cost items will be included in the budget so it’s important to do your research and allocate enough aside that will cover these costs. Keep in mind there will be additional soft cost items during construction. 

The most important thing to understand is that soft cost items have a direct effect on the hard costs of a project.

The design of your project could be as simple as a stock plan or complex as an elaborate custom design. The cost of the design is one thing, but the construction of that design is entirely another. This then builds to your cost of engineering, permitting fees, insurance, project management fees, etc. Work with your team to be cognizant of your overall costs and how they work and build on each other.

So next time you hear your GC or PM talk about these types of costs, you know exactly what they’re talking about.